Interest Free Credit Cards? Remember P.T. Barnum!

Credit Card companies have a new pitch - "0% Interest on Balance Purchases & Transfers Until XX/1/2012". The idea is to give you credit, with no interest on the outstanding balance for 12 months. And, as an added bonus, the offering company will even take your balance, on which you are being charged 20% from another card, and let you move it, AT NO INTEREST, for the same period. Sounds too good to be true? It is!!

First, all of these offers looked at closely, contain a "nominal" fee for making the balance transfer - like 5% of the amount of the transfer. That is a one time immediate capture fee, meaning they get paid by increasing your balance by that 5%. One could say that it's still a bargain because it's only 5% instead of 20%. However, if you pay the entire balance off in 3 months, you paid a rate of 20% annualized, versus paying the old card 20% balance off in 3 months which has the same effective rate. Well, same rate so you are no worse off than if you kept the old card. WRONG!

That 5% fee get added to your principal balance because it's a fee, not interest. So, instead of paying interest on $5,000 (which is the amount transferred in this example) you pay interest on $5,250. But you might retort and say, "Hey, I am not paying any interest on balance transfers so I was no worse off, and if I keep the money for the year, I am much better off - 0% on $5,250 versus 20% on $5000". Yes, that's true - well sort of true. You will be paying whatever the interest rate is on cash advances on the $250 "fee" which is a cash advance. However, like they say in the infomercials "BUT WAIT, THERE'S MORE!".

If by some chance you do not pay the entire balance, transfers from other cars and purchases made during the "introductory period" ending on XX/1/2012, the entire balance AND DEFERRED INTEREST, the amount of interest that the $5,000 would have earned the card issuer for the entire year, becomes part of the balance and you are subject to the regular interest rate which can be, SURPRISE, 20%! Even if you pay the $5,000 transfer amount back in full, if you don't also pay the $250 "fee" you will be charged an amount equal to the interest on all of the $5,000.

So if the regular rate is 20%, you will now have an additional bill of $1,000, which you will pay 20% for until that is paid in full. Actually, if there is $1.00 outstanding on your bill at the end of the introductory period, you will find your next bill has $1,000 added to the $1.00 that was missed in your previous payment.

Outrageous, but perfectly legal. When the Credit Card Act was passed last year, it took 5 seconds for the card issuers to find a way to keep there profits high. This is one way. Oh, and as an added treat, this scenario applies to most of the retailers, like electronics stores and appliance stores and any "big ticket item" stores - "Buy now and pay no interest for 1 full year!". When that "1 full year" is up, if you haven't paid the balance in full, expect all of that deferred interest to hit you on the bill you get in the 13th month.

The FDIC has a great website that will take you through this and a dozen other ways cards can haunt you now, even more than before.

http://www.fdic.gov/consumers/consumer/news/cnspr10/new_realities.html

Look, credit is fine; credit cards are useful and sometimes necessary, especially in emergencies. JUST KNOW THE RULES! Read ALL of the mail - even the stuff that looks like junk mail - there may be a hidden $1,000 charge in that envelope.

Author's Copyright by Richard I. Isacoff, Esq., May 2011

rii@isacofflaw.com

http://www.isacofflaw.com/

The Recession:It Has An End (We Hope)

I recently saw a billboard that read " THE RECESSION: IT HAS AND END". Tell that to the people who have been irreparably damaged by the economic collapse we have just been through and the slow recovery we are in now.

The recession and the increase in foreclosures has actually aided one sector of business. If you watch cable television, especially after 8pm almost any evening you will instantly recognize the verbal headline "STOP FORECLOSURE NOW!" or one of my other favorites "IF YOU OWE AT LEAST $10,000 IN CREDIT CARD DEBT WE CAN HELP WITHOUT BANKRUPTCY". The telephone number to call is the same "CALL 1-800-WE SCAM U"

Jaundiced, cynical view? Just a hard cold look at an industry that preys off of peoples’ misery in these very difficult times. While the pace of NEW consumer credit debt has slowed, it is more because of the fact that card issuers have increased rates to 30% (just before the Feb. 22, 2010 deadline) or because they have cut back credit lines so that there is virtually no available credit on many card-holders cards - they have been MAXED OUT (Read James Scurlock’s book of that name or get the DVD of this award winning documentary on consumer credit in the US)

The Mortgage rescue scam companies are out there in force promising to save your house provided you pay them anywhere from $1,500 to $7,500 up front for their services. The most that nearly all of them can do is to direct you to complete documents for participation in the President’s "MAKING HOME AFFORDABLE" program.

From experience, most lenders, while they do not want to take houses, do not want to have a mortgage loan on the books that is not paying the monthly installment. It is inconceivable that there are these super companies out there in TV world which can work miracles and force a mortgage lender or a mortgage servicer to take less than it is owed. Some will have your mortgage documents audited - reviewed for any irregularities or violations of the laws that govern consumer lending and specifically mortgage transactions. Others will just keep stalling, using your money until the house is foreclosed on, or right until the week before a foreclosure sale and then return some portion to you. They will blame the lenders - You will not have a home!

On the credit card side, there is at least one company that is offering assistance with credit card debt as "...authorized by the President's Stimulus Plan". The Treasury Department’s, FDIC’s TARP’S, the Federal Reserve’s plan all allow debt reduction. BUT, such plans were always allowed. . The promise that for a "reasonable fee" a company can force a creditor to take 50% is absurd. It is especially harmful to those who stop making regular payments because of the promised salvation described in the 60 second "magic pill"commercial

Quick tips :

1. There is no secret to reducing the debt (see earlier posts). If it is a mortgage, you need an attorney or someone from one of the government sponsored programs to help you through the maze of paperwork.

2. Credit Card debt? - Most companies will not even talk to you about a compromise settlement until you are 90 days late. By then, if the company will not accept the "settlement offer" you are so far behind that you will never be able to catch up. There are a few like Consumer Credit Counseling Services of Southern New England (or your location) which will try to negotiate reduced interest rates to lower your payments BEFORE you get too far behind. They change a nominal monthly fees but no up front fee for their service.

3. If you are in danger of losing your home, or of losing your sanity, contact an attorney who works in these fields. You should get objective and non-leading advice. If a bankruptcy is the only way to protect your house, you will be so informed. If you cannot make even minimum monthly payments on your credit cards, a brief consultation, normally free, with an attorney will point that out to you. On the other hand, if there is another way around the problems, a knowledgeable and ethical attorney will be able to show you the way.

In summary - do not fall for the "1 800 we save u" companies. If they were that good, the TV advertising wouldn't be necessary and the Treasury Department would hire them to straighten out the federal budget

Author's Copyright by Richard I Isacoff, Esq, March 2010

http://www.isacofflaw.com/

rii@isacofflaw.com

New Credit Card Regs Effective Today

(See entire posting on this issue at February 10, 2009)

New Credit CARD Act of 2009 rules went into effect TODAY, and the are actually some decent regulations

1. Card Issuers will have to check on the customers ability to repay before issuing cards. Sounds common sense doesn't it! It will be unreasonable, under the new regulation and always has been based on life, for a card issuer to give a card to someone without income or assets, and for a card issuer not to review such information.

2. Before you can be assessed an over-limit fee, you will have to AGREE to allow over your limit charges to be accepted. It is not like so many other programs where you have to say "no" or your in, here if you do not say "YES" you cannot be assessed a fee or penalized in any way if you are approved for an over-limit charge

3. If the Card Issuer is going to increase your rate, for any reason, you must receive at least 45 days notice, and then the increase can only apply to charges/cash advances AFTER the 45 day date. Old balances pay at the old rate of interest.

4. Your rate cannot be increased, in nearly all circumstances, for the first 12 months you have your card. The exceptions include if you get a variable rate card where the interest rate is supposed to go up and down; or if you are more than 60 days late in the first 12 months.

5. If you are under 21, you will have to show that you can afford the payments on your maximum credit limit, or have an over 21 co-signor.

6. Card issuers will not be able to make deals with colleges or high schools to come onto campus to offer cards if the card company offers the school an incentive to let it in.

7. Payment dates must be the same day (1st 4th 8th 27th etc) each month and if the payment date falls on a holiday or weekend, not late fee or penalty can be assessed

8. The new statements must contain information in bold type of the New Balance, Minimum Payment Due, and the Due Date. There must also be a warning of what will happen to the rate and when it will happen if a payment is late. The biggest change in statements is that each month it MUST show how long it will take to pay off the balance at the present interest rate if you make Only The Minimum Payment; AND HOW MUCH YOU WILL HAVE TO PAY, TO PAY OFF THE BALANCE IN 3 YEARS. It must also show how much in total you will pay in each case

9. Credit Card Issuers MUST post their agreements on their websites, have the agreements first approved by the Federal Reserve, and have the Federal Reserve Board post them on the Fed’s comprehensive and advertised Card Agreement Website. (WELCOME TO 2010!)

Note: The full 841 page bill with commentary before final adoption is available at the Federal Reserve’s website but a shortened version along with the long one is at: www.federalreserve.gov/consumerinfo/wyntk/creditcardrules.htm

Others At:

http://www.fdic.gov/regulations/laws/rules/6500-1400.html

http://abclocal.go.com/kgo/story?section=news/7_on_your_side&id=7252770

http://www.youtube.com/watch?v=EGY0jooXIsU&feature=player_embedded

Author's Copyright by Richard I. Isacoff, Esq, February 2010

rii@isacofflaw.com
http://www.isacofflaw.com/

New Credit Card Rules - Finally!

In August of last year some of the new Credit CARD Act of 2009 rules went into effect, saving the most far reaching provisions until February 22, 2010. That’s right, just a few days from now. So, what has Congress in store for us now? Actually some decent regulations

1. Card Issuers will have to check on the customers ability to repay before issuing cards. Sounds common sense doesn’t it! It will be unreasonable, under the new regulation and always has been based on life, for a card issuer to give a card to someone without income or assets, and for a card issuer not to review such information.

Currently, most card issuers just check the credit ("FICO") score, or maybe the score and the recent payment history. NEW: Now there must be policies in place to determine the ratio of debt obligations to income; or the debt obligations to assets; or the amount the consumer will have remaining after paying debts. The card issuer may rely on the information provided by the consumer on his/her application. Otherwise the company will have to gather information on deposits, assets, income - just like a real lender. If you "stretch" your income on a credit application (show more significantly income than you make each month) do not look for the laws to help defend you.

2. Before you can be assessed an over-limit fee, you will have to AGREE to allow over your limit charges to be accepted. It is not like so many other programs where you have to say "no" or your in, here if you do not say "YES" you cannot be assessed a fee or penalized in any way if you are approved for an over-limit charge

Right now, many card issuers love it when someone goes $.01 over the authorized limit because the card company can charge a fee of whatever it wants, but commonly $39. True, you do not get rejected at the check-out counter but, maybe you would want to know before buying a hamburger at McD’s for $1.00 and paying $39 for the privilege.

3. If the Card Issuer is going to increase your rate, for any reason, you must receive at least 45 days notice, and then the increase can only apply to charges/cash advances AFTER the 45 day date. Old balances pay at the old rate of interest.

At the present, if you get a rate increase, your fault for being late too often or because the card company is greedy, the increase applies to all outstanding balances - old/existing and new. Now it will be only on the new activity.

4. Your rate cannot be increased, in nearly all circumstances, for the first 12 months you have your card. The exceptions include if you get a variable rate card where the interest rate is supposed to go up and down; or if you are more than 60 days late in the first 12 months.

Teaser rates - will be nearly a thing of the past. The company will have to disclose the teaser rate period and the actual rate it will charge after that period is up And the teaser period must be at least 6 months

5. If you are under 21, you will have to show that you can afford the payments on your maximum credit limit, or have an over 21 co-signor.

We all know of the horror stories about the 17 or 18 year old high school student who get an offer in the mail, sends back the YES I WANT IT postcard, gets a $7,500 credit limit, and then cannot make the minimum payments after one payment is missed and the rate goes from 5% to 30.99% Will this be annoying? Sure, but it will prevent a good deal of anxiety on the part of those under 21 who got "swindled"/misled/were easy marks. If the under 21 can show that he/she can pay, from a provable source, then the card company is permitted to issue the card.

6. Card issuers will not be able to make deals with colleges or high schools to come onto campus to offer cards if the card company offers the school an incentive to let it in.

Surprised that schools would get kick-backs? Why be surprised - look at college football! If there is any kind of permission given, both the school and the card company MUST disclose all arrangements; any that pay the school will be deemed illegal.

7. Payment dates must be the same day (1st 4th 8th 27th etc) each month and if the payment date falls on a holiday or weekend, not late fee or penalty can be assessed

Credit card companies love changing the day a payment is due to, for instance, "25 days from the date the last payment was received if it was not received late". Who knows when the company receives a payment. Also, weekends and holidays are bonus days for companies because they have earned a great deal of late fees the day after those days.

8. The new statements must contain information in bold type of the New Balance, Minimum Payment Due, and the Due Date. There must also be a warning of what will happen to the rate and when it will happen if a payment is late. The biggest change in statements is that each month it MUST show how long it will take to pay off the balance at the present interest rate if you make Only The Minimum Payment; AND HOW MUCH YOU WILL HAVE TO PAY, TO PAY OFF THE BALANCE IN 3 YEARS. It must also show how much in total you will pay in each case

9. Credit Card Issuers MUST post their agreements on their websites, have the agreements first approved by the Federal Reserve, and have the Federal Reserve Board posat them on the Fed’s comprehensive and advertised Card Agreement Website. (WELCOME TO 2010!)

Note: The full 841 page bill with commentary before fianl adoption is available at the Federal Reserve’s website but a shortened version along with the long one is at:

www.federalreserve.gov/consumerinfo/wyntk/creditcardrules.htm

Others At:

http://www.fdic.gov/regulations/laws/rules/6500-1400.html

http://abclocal.go.com/kgo/story?section=news/7_on_your_side&id=7252770

http://www.youtube.com/watch?v=EGY0jooXIsU&feature=player_embedded

Author's Copyright by Richard I. Isacoff, Esq, February 2010
rii@isacofflaw.com

http://www.isacofflaw.com/

Foreclosures, Jobs, Bank Mergers, & What Retirement ?

As we approach the end of the year there are a number if issues we should keep in mind. All are important but at differing levels depending on our own circumstances

1. The Foreclosure Crisis is far from over. There are currently approximately 3.5 million homes in some stage of foreclosure. It is projected that 2010 will see another 3 million enter foreclosure (that's 6.5 million without any further economic deterioration). Keep in mind that this does not include mortgages in default, by even as much as 90 days, that have not been moved to the "F" status by the lender.

The Making Home Affordable Program ("MHA") is broken, probably beyond repair. Very few (less than 1% of the loans in the Trial Modification period) have made it to a permanent modification. Lenders are blaming borrowers for not sending in documents timely or for not making payments within the successive 30 day periods. True, the are a certain number of borrowers who will not be able to keep their homes because they could never have afforded it, or have had a life altering experience from which they cannot recover.

BUT, I have had to submit documents for 40% of my clients, for whom I am working the MHA program, 2, 3, and even 4 times; and sometimes Borrowers are promised coupons for payments, never get them, make a payment late and are disqualified from the program - this again from my personal experience as an attorney with knowledge of the MHA program, bankruptcy, mortgages, real estate conveyancing, finance and financial planning, money management, banking and economics.

2. Un-Employment and Under-Employment exceeds 14%. Add to that sobering figure the numbers of jobless who no longer have unemployment benefits and who have given up registering for jobs at the local State Agency, and we move to the 18%-20% range or 1 in 5 or 6 people in the eligible labor force. This does not help the foreclosure problem - it's hard to pay for your house with no job, or with receiving a cut in hours by 25%, or by getting a "new" job paying $11/hour instead of the $18/hr in the job just lost.

Un/under-employment doesn't help consumer spending either. People are spending less, especially for true discretionary items, like the new car, new television, new washing machine, extra pair of shoes, and eating out. That is bad for business profits which is bad for job creation or just job market stability. And it is not just the big stores that are suffering; in fact, they can weather the storm better than the mom and pop stores and small businesses nationwide. All of this leads to a further erosion in jobs and then another round of foreclosures, and then another bank failure and on and on.

3. In a mere 15 months there has been such a massive consolidation in the Banking and Finance sectors that 3 years ago the Justice Department would have been bringing anti-trust actions daily (yes, that is hyperbole but barely). How has this hurt? Try to get a loan from any non-local bank, especially if you have average credit individually or are a small business with no access to equity markets (selling stock for example) or public debt offerings (like corporate bonds).

So now we have businesses, under the gun because of a downturn in business which is caused by un/under-employment, which cannot get money to stay in business waiting for the economy to turn positive - thus another business failure. Or we have an individual who cannot convince his/her lender to modify a loan or refinance it (no cash out at closing, just a lower interest rate) because the bank finds the Borrower's credit does not meet the lender's NEW credit criteria.
Guess what? Another foreclosure! Oh, and by the way, each foreclosure tends to lower the values of homes around the foreclosed property, so equity evaporates making it impossible for the under-employed with an above-average but not stellar credit score to refinance because the loan-to-value ratio (amount of loan divided into the value of the house) is too high (greater then 70-80%).

4. The "golden years" of retirement? They may be gone for an entire generation who had investments in 401k plans, IRAs, and the stock market generally. Sure the markets are up in the sense that the Dow, NASDAQ, and S&P indices are up from their lows, but have average people recovered their losses. Basically NO! When we hear "The stock market is up 24% from a year ago" (still 30+% below where it was before the crash) that means that the securities traders are making money and some large corporations are as well. Sure, some individuals' portfolios have gained back part of the loss but recovered? NO! And we still do not know about Social Security, or health care, or ....

Further, as discussed on NPR's show "Marketplace Money" this morning by Knight Kiplinger, editor-in-chief of one of the most respected financial publications, there is a new reality: People cannot depend on the equity in their homes for part of their retirement funding. His comments went on to state that "... now housing has returned to its rightful place, as a place you live. It is shelter; it is not an investment".

This is a major change in approach from what had been a belief held for decades by homeowners, and was part of the advice given by investment counselors/financial planners to their customers/clients. It went something like this: "With the yearly appreciation on your house being 5%, in 14 1/2 years the value will have doubled and the mortgage will be paid down by one-half, so you'll have plenty of equity when you sell to buy that nice condo by the beach".

Now we cannot plan to use the house we live in for retirement money - after 25 years and 5 refinances, but never beyond 80% of the house's value, we will be lucky to have the funds to pay off the then existing mortgage and have a few dollars left for? Certainly not the condo on the beach. Is that what has happened in the housing market and if so, what is being done to stop the further erosion of value, goes down every time there is a foreclosure in the area of your home.

We go back to the Mortgage meltdown, the continuing high un/under- employment, the rampant crimes committed by Wall Street mortgage securitizers, and our own use of our homes as the means to get money for vacations, a new car, a new porch or pool etc. When you get a Home Equity Line Of Credit ("HELOC") and it comes with a debit card to make using the credit line easier, we should have known something was not right. Paying for a cup of coffee with your house's equity? Maybe not that bad but...

* * * * * * * * * * * * * * * * * * * * * * * *

More crucial is our attitude, the way we all believe this will turn out. There is growing despair among those hit hardest - those who have lost jobs and those who are losing homes. EMPLOYMENT is perhaps the biggest obstacle to overcome. If people are gainfully employed they can begin to recapture their lives. Then and only then there is the potential to save the home, or not worry about whether the heating bill should be paid or the electric bill; and the car payment?

After a sign that the job scene is getting better, people NEED to see and believe that the government is taking real steps to stop foreclosures. Earlier posts have discussed some of the ways the loans which have become securitized can be modified. That said, our current financial services (banking, brokerage, insurance) regulators like FDIC, Federal Reserve, Treasury Department must take action to force the lenders to modify those loans that already qualify for the MHA program. Lost documents, unreasonable deadlines given to borrowers, no clear instructions on where to send payments, an endless loop of telephone prompts without human intervention for 30-45 minutes, all have to stop.

Maybe the outcome of the foreclosures will be to create jobs with the companies that service the loans, inspect the properties, go to Court to evict you, and clean up the property to get the house ready for sale.

Prognosis? the patient, us, will live but what will be the quality of life?

Author's Copyright by Richard I. Isacoff, Esq, December 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Interesting Interest Rates

30 Year Home Mortgage Rate Hits 17% Prime Rate at 16%+ Savings account interest reaches 12% Ancient post depression history NO - 1982

The graph above shows the history of the Prime Rate (interest rate charged to a bank's least risky and best customers) - compare those rates to what you pay for credit cards, auto loans, and mortgages, for a real eye-opener

Here is a little chart of the Fed Funds Rate (the interest rate the Federal Reserve Banks charge member Banks to borrow - single day loans), the 30 Year Mortgage Rate, the Daily Savings Account Rate, and the 1 Year CD Rate (all averaged for the respective year) :

1982: Fed Funds 12.25% Mortgage 17% Savings 12%

1989: Fed Funds 9.17% Mortgage 11% Savings 8.5%

1995: Fed Funds 5.9% Mortgage 7.9% Savings 4.75% 1 Year CD 7%

2000:Fed Funds 6.42% Mortgage 8.1% Savings 5.5% 1 Year CD 6.625%

2005:Fed Funds 3.33% Mortgage 5.9% Savings 2.35% 1 Year CD 3.25

2007:Fed Funds 5.04% Mortgage 6.3% Savings 4.25% 1 Year CD 4.9%

2008:Fed Funds 1.85% Mortgage 6% Savings 2.5% 1 Year CD 2.5%

2009:Fed Funds .25% Mortgage 5.1% Savings 0.5% 1 Year CD 2%

Why are all of the numbers important? They show the level of inflation, the cost to consumers for borrowing, and perhaps most significantly, the profit the banks are making on money. For example, in 1982, while mortgages were 17% plus points, banks were being charged 12.25% by the Fed and paying 12% to depositors. Keep in mind that a deposit in a bank is nothing more than a customers loan to the bank for the rate of interest being paid on the savings account or CD.

At that time, there was a 5% margin between the cost of money and the rate that could be charged to consumers for a mortgage. The MARGIN narrowed to 2%+/- for the next 27 years; then at the height of the crisis, the margin grew to 5% again. So, in inflation and in recession, the Banks made the same margin. Rates were so stable that savings bank bankers were called "3-6-3" bankers: take it in at 3% (savings deposits) lend it out at 6% (mortgage) and go home at 3 (afternoon) (That was the time before securitization of mortgages).

There are two lessons to be gleaned from the figures other than the fact that Banks make money: 1. When the Cost of Funds (to Banks) is low Banks charge what the market will bear. It is a "free market", unlike the regulated days of the 60s and 70s, and Banks can take advantage of this era. 2. The current interest rates are so low, that as to Banks, there is almost free money. This will not stay so cheap for Banks.

With the interest rates so low, and Banks making 5% on mortgages, and more than 3% on Prime Interest Rate loans (the rate charged to the best customers (those with no risk of default - like GM, right?) why are Banks charging 19%-30% for credit card debt? This is the primary debt for consumers beyond a mortgage. The Banks are making an obscene 15% to 25%+ on the average borrower's credit card balance!!

What is worse, in anticipation of the new laws which prohibit card issuers from arbitrarily raising interest rates because of a one time-one day late payment, or because a payment was a day late on A DIFFERENT CARD, Interest Rates on credit cards have jumped 10%-20% and credit limits have been reduced by 50%-75%.

The next post will deal with the profits being made by banks in real dollar terms. Why is any of this important? The so-called recovery is only in the financial markets. Unemployment is soaring, the dollar is weak (to be explained next post) and the average consumer has seen no relief. Oh, and in case anyone has missed the news, foreclosures are still going strong.

Author's Copyright by Richard I. Isacoff, Esq, November 2009

http://www.isacofflaw.com/

Credit Cards - Rep. Barney Frank's Frustration (Mine Also)

Rep. Barney Frank (D), Congressman from Western MA, wants to "push up" the effective date of the new Credit Card regulations. He is prompted by the frenzy of card issuers raising rates, cutting limits, changing terms, and adding fees, all to beat the starting date of the laws. The laws merely set limits on how and how often card companies can change the terms of the agreement you have with them, without prior notice.

The standard argument, that there is no contract unless both sides agree, is not able to be put forth, because in the agreement you signed originally you gave the company the right to make all of these changes, even to your detriment. Is it fair? NO!, Is it legal? Yes, but only until the first of the year.

Congressman Frank's frustration is understandable, especially if you have a card and have been "slammed" by the card company with rates and fees you never anticipated. That these same companies, CitiBank, Bank of America, Chase, all have Federal Money from the bailout is beside the point. As stated in an earlier post, this is how they were able to report record earnings last quarter.

Congress will not change the date to October as Congressman Frank wants, but at least the issue is again being discussed. Unfortunately, the Congressman may suffer a decline in his credibility with his colleagues, but he will have a boost from his constituents.

Right now, everyone should be examining his/her cards and statements to determine if the terms have suddenly changes, if rates are higher, credit limits lower. If you need a card try a local financial institution. If none issue cards, shop for a new one, if yours is not playing fair. Be certain that you read the "Agreement and Terms" disclosure that will be your contract, BEFORE you use the card. Do not hesitate to decline the card even after it is issued to you. Be certain however, that you follow the rules on terminating the relationship or you could find an open credit line, detracting from your credit score, all the while believing that the card account was closed.

To be safe about credit, whether it is cards, loans, mortgages, joint accounts, "authorized user" cards (where the credit is based on someone else who has given you a card to use), get at least one credit report every six months. They are free from http://www.annualcreditreport.com/ .

Check to be certain that only the cards you use are open. Close everything else. While there may be a slight drop in your credit score (see posts of 7/27/09 and 6/11/09), the risk is far less than if you have unused and unwanted open credit lines affecting your score and overall credit standing.

Author's Copyright by Richard I. Isacoff, Esq, September, 2009

rii@isacofflaw.com

http://www.isacofflaw.com/

Get Protection from Creditors - But Wait, There's More!

"Protection from creditors" - just a euphemism for Bankruptcy? No, it is what filing Bankruptcy is and does. There are no more Debtors' prisons and no one has to walk around with a big scarlet "B" on his/her chest. Fine!, but what really happens, and who can file for protection? Before going any further, filing Bankruptcy WILL NOT force you to lose your house or car. In fact, it may help you to keep them.

My post of Monday July 27th discussed the need for completing a full personal budget for you and your family (if there is one to consider). Again, make a list of ALL regular living expenses, including cigarettes, gasoline, socks...EVERYTHING EXCEPT UNSECURED DEBT like credit cards and personal loans (Beneficial, CitiFinancial, HFC/HSBC etc. Then figure out your regular monthly income, including OT you ALWAYS get, bonuses you ALWAYS get, child support/alimony, pension, steady part-time jobs etc. then deduct all payroll taxes and insurance costs to get a net income. Next, if you are paid every 2 weeks, multiply the NET INCOME by 26 and divide that result by 12 to get a net monthly income.

THE MOMENT OF TRUTH - deduct your regular monthly expenses from your regular monthly income.If you have money remaining, is it enough to pay all of the minimum payments PLUS 1% of the principal for each card/debt? If the answer is yes, start by making a real month by month budget and start paying down each debt every month. Be sure to be on time, and that means the payments have to be in the mail at least 7 days before they are due, or 10 days before the start of the next billing cycle.

If you cannot make the payments and meet your expenses, then consider a bankruptcy consultation with an experienced Bankruptcy Attorney. You can find one on the web by going to www.nacba.org , which is the site for the National Association of Consumer Bankruptcy Attorneys, or by e-mailing me and we will get you a referral.

Bankruptcy is a RIGHT, not a privilege. The laws and rules are "spelled out" in Title 11 of the U.S. Code. It states clearly in Congressional intent and is sen again and again in cases, that the purpose of the Bankruptcy laws is to give Debtors, who cannot repay their debts, a "FRESH START". It is not punitive - it is a RIGHT.

For consumers, there are 2 sections of the Code that apply: Chapter 13, which is a way for people who have some money left over at the end of the month to repay a percentage of what they owe, be it 5%, 10% or 100%. The repayment period is up to 5 years, and the 30% interest rates stop immediately; and Chapter 7, where the consumer/debtor cannot make ANY payments for a 36 month period, or the amount of the payments would be so insignificant that the consumer really should keep the funds for emergencies.

Most good Bankruptcy lawyers will not charge for the initial consultation which is where she/he will help you determine if a Bankruptcy is the correct financial decision for you. The rules for filing are not that difficult to understand and the next Post will go into the details.

Author's Copyright by Richard I. Isacoff, Esq., July 2009
www.isacofflaw.com
rii@isacofflaw.com

Credit Card Rules - Explained (sort of). What to Do Until Then

On June 11, 2009, I wrote extensively about the new credit card laws - the ones that do us no good at the moment but might as the varied effective dates arrive.

Attached/Linked title of this posting, and again at the end of this entry, is a video that goes through the major points of the new rules.

None of the rules will erase any debt that has already been incurred, regardless of how unfair the borrower believes the debt to be. Interest rates jumping to 30% , late fees of $39 on a balance of $100 with a report of late payments (over 30 days) to the credit agencies, with, of course the accompanying rate increase, and perhaps the most difficult for regular card users, the arbitrary elimination of the available credit/decrease in credit line, without warning or apparent reason.

The 2 real banks, and the 1 "investment bank" (see last post for that definition) that had record profits, Bank of America, CitiBank/CitiGroup, and Goldman Sachs respectively, are the worst offenders. Yesterday, in the Sunday edition of the New York Times, there was a story by David Streitfeld dealing with Bank of America specifically, but the industry in general. In it he describes a woman who could not keep up with the higher and higher interest rates being charged. After pleading with Bank of America to lower the interest rate on her account without success, she just stopped paying her monthly bill. A wise decision? - probably not! - except in this case it was born out of desperation. The result: Bank of America called her with "deals" so she could afford her payments.

Look at the video - read the article in the Times and think about your position. Are you able to go without Credit Cards? Can you pay the minimum payments PLUS 1% of the balance owed to lower the principal and actually pay down the debt? If you can, then you may be able to get out of debt.

Factor in all of your debt - especially the credit cards. IMPORTANT!! - Put together an accurate list of your regular monthly living expenses. Include such things as cigarettes (if you smoke), a reasonable amount for food, eating out if it's unavoidable, enough for gasoline and a monthly budget for car repairs (during the entire year), all of your insurances, clothing (include shoes and underwear), income taxes expected to be paid over and above payroll deductions, student loans, cell phone, cable, Internet, utilities, rent/mortgage, and everything else that you really need to spend or save for each and every month. After all of that, can you pay the minimum PLUS at least 1% of the outstanding balance on all debts, whether each is a credit card, a personal loan from CitiFinancial/HFC,HSBC,Beneficial, or from anywhere else.

If after doing that budget exercise you can make the payments GREAT!! Do not be late on one payment or your plan might become dust in the wind. BUT try. If you cannot, seek financial counseling - not from a TV advertiser promising to reduce your debt to "pennies on the dollar" for a mere $XXXX.XX per month and a non-refundable processing fee of $XXX.XX

Author's Copyright by Richard I. Isacoff, Esq, July 2009
http://www.isacofflaw.com/
rii@isacofflaw.com

http://video.nytimes.com/video/2009/05/19/your-money/1194840368370/guide-to-new-credit-card-rules.html

Credit Card Laws - Sweeping Changes

The predictions of a difficult passage for the new Credit Card Legislation proved to be wrong. Congress, both the House and the Senate, fought back attempts by the finance industry to kill the Bill that will vastly alter the landscape of Credit Card issuance and cost to borrowers/users.

The formal name of the new law is the "Credit Card Accountability Responsibility and Disclosure Act of 2009"or the "Credit CARD Act of 2009" (note - the capitalized "CARD" is part of the actual name) Perhaps another, equally appropriate name would be the "Consumers Attempt at Revenge by Dodd Act of 2009". (Senator Christopher Dodd (D. CT) was the Senate’s primary sponsor and "pusher" of the bill.)

The details of the new law, known as Public Law No. 111-24, are yet to be finalized, as regulations have to be promulgated by various Federal agencies, but the main provisions are truly sweeping. Before briefly discussing each change or addition to the existing laws/rules, it must be noted that the Credit Card industry won one major battle. The original bills in the Senate and the House set an interest rate cap of 15% on any credit card. That provision never made it to a final vote. The industry Lobby made it clear to Congress that it would not permit such a cap on interest rates. In a compromise to get the rest of the improvements in the law passed and signed by the President (which he did on May 22, 2009), Congress dropped a cap on rates altogether.

Here are the primary provisions of the CARD Act of 2009: (Most of the "new" law is a change to the Truth In Lending Act")

1. There cannot be any more interest increases because your payment is received a day or two after the due date. Further, the increase in rate can only apply to FUTURE uses of the card - new purchases, advances etc. The balance owed at the time of the increase in the rate can only be charged the rate in effect before the change.

2. If there will be an increase for being late, you must be 60 days late, unless there are other issues involved. (The law gives the credit card issuer the right to raise a rate for future use of the card because of factors such as increased risk etc.) Even here however, the change applies to new balances only and there must be the new notice given.

3. Rate increases, in general, must be preceded by a 45 day notice and can apply only to FUTURE balances. It is important to note that the non-retroactivity of increases in rates applies here also.

4. If there is going to be a rate change, other than a change due to your card having a variable interest rate that goes up or down based on an index like the prime interest rate, or the U.S. Treasury rate etc, you MUST receive at least 45 days notice.

5. One major change is that if you or the credit card issuer terminates the card account, you MUST be given an amortization period of at least five (5) year to pay the outstanding balance OR you cannot be charged more than twice the regular minimum monthly payment. You cannot be forced to pay off the balance in a lump sum.

6. Unless you get a low introductory rate (teaser rate), there can be no interest rate increase for the first year. The exception is if you pay more than 60 days late.

7. The monthly interest/finance charge can not be calculated using the prior month’s balance if there has been a payment on that balance before the new statement date. That is a major change as many companies computed interest against balances that had been paid-off during the month.

8. No fee can be charged for going over your credit limit unless you specifically, and in writing, permit the card company to allow charges over your limit. Further, if there is a fee, you can only be charged once in the current billing cycle. So, if you go over limit 4 times during the month, you can only be charged one over-limit penalty fee.

9. If you pay by telephone or over the internet, you cannot be charged a service fee unless the company expedites the payment for you. So, if the payment is normally credited the next day if received after 2pm, but if you pay by a check by phone at 4pm and get the payment credited to your account that day, you can be charged a reasonable service fee.

10. When you make a payment more than the minimum amount due, all amounts over the minimum must be applied to the highest interest rate items in your balance. A simple example: you owe $1,500 for purchases which has an interest rate of 10%, and you owe $1,000 for a cash advance with an interest rate of 15%. You have a minimum payment due of $50, but you pay $200. After applying the $50 minimum payment amount in whatever way the company and you "agreed to" in the "contract", the rest of the payment, the remaining $150, goes to pay down the cash advance because the interest rate being charged is higher than for the purchases.

11 Your statements will be different. Every statement must show the current balance and the interest rate being charged for each type of card use (cash advance, purchase etc). Further an most important, the statement must illustrate how long it will take to payoff your actual balance assuming you make only the minimum payments and what the total cost in interest will be. The same document only also show how much interest you would pay in total if you pay off the card in 36 months (both assume no further card use)

12. Any one under age 21 must have a parent, guardian etc co-sign for him/her unless the under-age person can demonstrate with proper financial disclosures, that he/she has the ability to pay the debt that may be incurred by him/her-self.

As with all laws, the devil is in the details. Here, the details will be set by the Federal Reserve Board which will enact regulations to "fill in the holes", provide definitions like what is the proper financial statements for under 21 borrowers, and what the new statement should look like, and what rules have to be in place for the "reasonableness" of all fees etc.

Finally, certain provisions take effect on 90 days, some in 9 months and some 9 months after the rules are made which has to be done within 15 months. In general ALL of the provisions requiring new notices become effective at the end of August 2009. The others ... hopefully we will have firm dates in the near future.

Author's Copyright by Richard I. Isacoff, Esq., June, 2009

http://www.isacofflaw.com/

rii@isacofflaw.com

Credit Cards and Credit Crunch - the Other Monster Under the Bed

It is official - credit card default rates are higher, as much as 30% higher than last year, and higher than the experts thought they would be. Okay, how much of an expert did you have to be to know that. All you need to have, to know the defaults are getting worse, is a CREDIT CARD, or two or three or four or...

What are the reasons? That may require an expert. Could it be the loss of 4 million jobs, or the increase in interest rates even when the Banks are paying next to nothing for the money they are lending, or people using credit cards just to buy food and pay for heat until the cards max out, or homeowners making the last few mortgage payments they will be able to make with the credit cards, or is it just cardholders being irresponsible and using the cards to pay for filing bankruptcy?

It has been reported that the total outstanding amount of credit outstanding for credit cards, used or unused credit, will decrease by 50% or $2 trillion by 2011. Card companies are cancelling cards, jumping up rates (see earlier post), and telling card holders that the cards will not be renewed. Okay, let's just fold up our tents and go home. These are the same financial institutions that got bailed out again, today, by the Treasury. The thanks?

Advice for those of us who will need or think we will need to use revolving credit (credit cards) goes something like this.

1 Pay down or even off the cards that are charging you the highest rate.

2. DO NOT be late on any card payment - the issuer can cancel your card or increase the rate.

3. Do not apply for any new cards - the applications you make will not only affect your credit score but existing card issuers might look at this act as a need for more credit, and they are afraid you will not be able to pay

4. Review your credit reports carefully to be certain only real credit is reported, that only your debts are shown, and that closed accounts are reported properly. Go to the web site http://www.annualcreditreport.com/ and order one report from each of the 3 bureaus - Experian, Equifax, Transunion. Be sure you do not ask for your score - it will cost you to get that,while the report itself is free. Do get fooled by other sites like freecreditreport.com as you will probably end up paying for something

5. Decide if you really need credit cards, beyond a small limit card for emergencies. Try living without them now because you might not have them later anyway.

6. DO NOT TAKE A HOME EQUITY LOAN TO PAY OFF CREDIT CARDS. You are changing unsecured debt into secured debt, and the security is your home.

7. See a credit counseling service or a good debt counselor to help you determine the amount of credit you will need month to month. Even if the lesson costs $250, it is far less than the interest on even a modest balance when the rate is 30%.

Is there an end in sight to the craziness? No! Maybe a halfway point? Yes

Author's Copyright by Richard I. Isacoff, Esq., March 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Lessons Not Learned

The lessons our financial leaders should have learned from the "mortgage crisis" but did not, show how slow we are as an economic structure to react by anticipatory behavior. It does matter whether the financial markets overheated because of a giant Ponzi scheme hundreds of times the size of Madoff's, unknowingly and unwittingly perpetrated by its very victims, or due to a lack of regulation, or having as a cause the unbridled greed of the now oft ill thought of "Wallstreeters". Of course, one could also point to the failure of the economists to predict and discern the emerging pattern which ended in an implosion in the world of imaginary numbers - not the type to which mathematicians refer, but to the type hedge fund managers, speculative investors, commodities traders, bankers needing to satisfy stockholders, and just every day people with 401k plans, used as their calculus.

The concern we should all have is not only to identify when the recession began and when the regulators should have stepped-in, but rather how to see the next "black hole" which will threaten the fabric of our financial world. We have turned our telescopes on the past; we should also look at the present to see the future. Easy mortgages were the symptom of the securitization flu. The effect of the burst of mortgage-backed securities and credit default swaps et al has been a shut-down of credit: that will be the killer.

As the Wall Street Journal pointed out, the next credit crunch will be credit cards and similar smaller, but just as widely used lines of credit like over-draft lines, HELOCS (home equity lines), the ubiquitous 90 day note, etc. These means of keeping consumers and small businesses running when cash is tight, are being shut down. Jobs are being lost and housing defaults are rising which are causing more lines to be closed or limited as a pre-emptive strike against larger losses. Yet there is no regulatory concern about there being no credit available to "just ordinary people" and "just ordinary small business".

Understandably, the emphasis is on saving the patient - the hell with a few limbs: perhaps a more cogent analogy however would be that the sacrifice of the few to save the many is okay, not necessary but OKAY. It's great if you are not one of the few. The "few" here are consumers - both businesses and individuals. If there is no credit, and jobs are being lost, people will horde. If there is hoarding, small businesses will fail, which will cause larger businesses to fail...

The same Banks that are taking billions to "stimulate" the economy are limiting credit to people and small businesses. In fact, they are withdrawing credit and calling loans, reminiscent of the late 80s & early 90s. Further, interest rates are sky-rocketing creating spreads that loan sharks would pay ½ of their "vig" to get. Borrow from the Fed/Treasury at 0% or maybe 0% plus 25 basis points and lend it out at prime plus 18.99%. Default rates are still up into the 30% range. Worse is that people will use every last dollar of credit, creating huge defaults, which the industry can predict but "Who cares? We'll just securitize it and sell 'em"

[NOTE: The following link will bring the reader to Wharton School of Business' website where a recap of Federal Reserve Chairman Ben Bernecke's recent speech is contained] http://knowledgetoday.wharton.upenn.edu/2009/03/changing-the-rules-.html

Credit Card Companies - Legal Loan Sharking?

The last post discussed the Debt Collection practices of many credit card companies. As the economy tightens even more, many people will turn to their credit cards as a last resort to buy necessities, like food, medicine, and gasoline (to get to work if they still have jobs). An earlier post discussed the companies raising interest rates for no other reason than they can.

The majority of the card companies are owned by banks In some cases these are the same banks which are trying to recover losses incurred in bad loans; often, improper mortgage lending practice results. So, "Let it go forth throughout the land that WE, who can offer 0% financing and raise the rate the next day, have determined that NOW is the time to strike. The masses need us more than ever and we can cash-in".

LOSE HERE, MAKE IT UP THERE!

Cynical - no - realistic. I was in the business and know how it used to work. Consequently, I understand all to well the need for a profitable business line in the Bank to offset losses. Citibank, as an example, has let business many customers know, that at the expiration of the current card, the interest rate will go to the prime rate (the rate the best businesses get from banks) PLUS 18.99%. Even now, with the prime rate extremely low, the effective interest factor on one of those business cards would be 22.24%. And that is for business which pay every month, and pay more than the minimum. Others are being told that they are no longer welcome, and to find another lender.

What makes this difficult is that the same approach is being taken in the retail side, with ordinary people who pay every month, with maybe a late payment (5-10 days) once in a while. They get charged a late fee of $29-$39 depending on the card, and then, if they are late at all, the card issuer raises the rate to the "Default Rate" which is between 24.99% and 31.99%. Further, in all of the card agreements the issuers state that they have the right to raise the rate to the Default Rate if, in the opinion of the issuer, the card holder has a change in financial circumstances. This translates to "if you are late on any card, even once, we can jump your rate from 6.99% to the Default Rate. The term for this provision and practice is the "Universal Default Provision".

Delinquencies are rising quickly, not because people do not want to pay, but because of a late payment the interest rate has jumped 400%, and the card holder can no longer make even the minimum payment. If he/she has more than one card, the effect is multiplied by the number of cards. Now come the collectors!

COLLECTORS - THEY DEMAND THE 30 PIECES OF SILVER - OR ELSE!

Most collectors receive a commission on what they collect. Some collectors are paid strictly on a commission basis. To make a living, the collectors will lie, insult, threaten, call family members, neighbors, ask for post-dated checks, and do many of the things that are illegal under federal or state laws, or both. (see the post dated February 8, 2009 for details).

If you get behind and the calls start "when will you be sending in you payment? If I don't get it by then I will repossess your dentures", do not panic. Keep track of who call, when the call takes place, and the basic content of the call. Again, please refer the the Feb. 8th posting for details.

Try to determine if you can enter a payment arrangement, not with an individual creditor if you have multiple cards, but with all of them. Contact "Consumer Credit Counseling Services", or "Money Management International". They are the only 2 true non-profit organizations that have good relationships with most card issuers and which charge a nominal fee for services. They DO NOT charge a large up-front fee. Run from places that do.

AGAIN, E-MAIL OR CALL ME IF YOU HAVE SPECIFIC QUESTIONS AND NEED HELP.

Author's Copyright by Richard I. Isacoff, Esq, February, 2009

http://www.isacofflaw.com/
rii@isacofflaw.com